Investing in a Resilient Future

We are facing a century of volatility, accelerated and exacerbated by the changing climate. This summer, we witnessed impacts that we weren’t expecting to feel for another 25 years — extraordinary storms across North America, devastating floods in Europe, and extreme heatwaves ravaging Asia have made it clear that the era of climate impacts is no longer a distant future. We are living in it now.

These climate impacts, however, are not limited to rising temperatures and sea levels. There are profound economic consequences already in motion. Biodiversity collapse, exacerbated by human activity, has heightened the risk of global pandemics. Dry riverbeds are choking commerce and transit routes, while displaced communities create political instability and disrupt global economies. To secure a world our children will want to live in, we must invest urgently in adaptation and resilience.

There is an alarming dearth of understanding how unprepared we are for the effects of climate change, and how to quantify the financial value of adaptation and resilience. What investors and issuers urgently need is a clear, standardised framework to identify and label climate resilience projects with the right kind of capital investment to mitigate these effects. This is where Climate Bonds steps to the fore with the latest expansion to its gold standard sustainable finance eligibility framework – its Resilience Taxonomy will go some significant way to meeting this need.

Capital investment must be directed toward projects that safeguard vulnerable populations and build the foundation for stronger, more adaptable economies, fit for a changing world.

The Need For Urgent Climate Resilience Investment

The Intergovernmental Panel on Climate Change (IPCC) has made it clear that the window of opportunity to secure a “livable and sustainable future for all” is rapidly closing. Near-term actions that limit global warming to 1.5°C would substantially reduce these impacts, but they won’t eliminate them entirely.

The IPCC’s Sixth Assessment Report highlights that approximately 3.3 to 3.6 billion people are living in areas highly vulnerable to climate change. Without significant investment in resilience and adaptation, these vulnerable regions will face ever-increasing challenges, threatening the livelihoods of billions and destabilising entire economies.

The United Nations Environment Programme (UNEP) estimates that by 2030, the financing needs for adaptation and resilience in developing countries alone could soar to as much as USD 387 billion annually. Global adaptation finance needs are expected to surpass even these figures. We are rapidly approaching a critical juncture, and the world’s financial systems must rise to meet the challenge.

Closing The Climate Resilience Financing Gap

While international agreements such as the Paris Accord have solidified climate ambitions, there are still enormous gaps in facilitating and financing action. Public sector financing alone is insufficient, but there is more than enough private capital available in the world to fund the transition. The challenge lies in redirecting this capital to where it is needed most.

According to the Climate Policy Initiative (CPI), in 2023, reported finance flows for climate adaptation were just USD 63 billion per year, with dual mitigation/adaptation benefits accounting for an additional USD 51 billion per year. This is out of a total reported climate finance flow of USD 1.27 trillion annually. Of these, almost all funding comes from public sector sources such as development finance institutions (DFIs), while only USD 1.5 billion comes from private finance.

The global sustainable debt market can bridge this gap. Green, social, sustainable, and sustainability-linked (GSS+) bonds, which have already channelled over USD 5.1 trillion into sustainable activities, have emerged as a primary vehicle for financing climate action. The demand for thematic borrowing and investment in areas like social equity, sustainability, and resilience is growing rapidly, but the supply of viable projects has struggled to keep pace.

This imbalance is particularly pronounced when it comes to climate resilience. Climate Bonds research found that only 19% of labelled green bonds had any resilience-related use of proceeds.

THE CLIMATE BONDS RESILIENCE TAXONOMY: A CRITICAL STEP FORWARD

A key reason for the gap in climate resilience financing is the lack of clear definitions and standards for resilience-focused investments. The Climate Bonds Resilience Taxonomy (CBRT) provides a detailed framework for identifying, verifying, and labelling climate resilience projects. It gives investors the confidence they need in the credibility of these investments with a common language that bridges the gap between issuers and financiers.

“This is a key step in guiding and mobilising investments towards adaptation and resilience projects,” said Assefar Hamid, Head of EMEA Sustainable & Impact Investing at Invesco, said. “The taxonomy will help standardise information disclosures for what constitutes an adaptation investment, reducing confusion among issuers and encouraging more investors to explore this new investment thematic.”

Sustainable finance taxonomies are essential in creating clarity and transparency in the market, providing investors and issuers with a common framework. The expanded taxonomy fills a critical gap by offering focused, detailed guidance on climate resilience, an area often under-prioritised in broader sustainable finance frameworks.

This expansion will include not only investments that reduce the direct physical impacts of climate change (e.g., flood barriers, early warning systems, etc.) but also investments that address the underlying vulnerability of people and ecosystems to climate change (e.g., healthcare, housing, gender equity, deforestation, etc.)

By integrating the criteria from the expanded taxonomy into national and regional finance taxonomies, countries and regions can accelerate the flow of capital toward climate adaptation and resilience projects, crucial as we grapple with the ever-growing impacts of climate change.

A PATH FORWARD: BUILDING A RESILIENT FUTURE

Climate resilience is no longer a choice — it is a necessity. We are already living with the consequences of climate change, and without significant investment in adaptation and resilience, these consequences will only worsen.

Climate Bonds’ new expanded taxonomy is a major step forward, but this is just the beginning. The sustainable debt market offers a powerful mechanism for financing climate action, but it must be leveraged more effectively. Investors, governments, and financial institutions must work together to scale up climate resilience financing and meet the growing needs of a warming planet.

Only by building resilient systems today can we hope to preserve a world that future generations will want to live in.

The time for action is now. Let’s make sure that our response to the climate crisis is measured not just by what we can prevent but also by how well we prepare for what’s to come.